• In the case of Car Universal Finance Ltd v Caldwell [1965] 1 Q.B. 525, it was held that where a party to a contract has an option to rescind or disaffirm it by reason of fraud or misrepresentation committed by the other party, he must elect to do so within a reasonable time. He will be unable to exercise this option if he has done anything to affirm the contract with knowledge of the fraud or misrepresentation.

Facts of the Case

  • On 12th January 1960, C sold a Jaguar car for £965 to a rogue, who took the car away leaving a £10 deposit and a £965 cheque.
  • The cheque was dishonoured when C tried to cash it the next morning. C immediately informed the police and Automobile Association of the fraudulent sale.
  • After this, the rogue sold the car to a firm of dealers, who had notice from which they could infer the car was obtained fraudulently.
  • The firm purported to sell the car to a finance house, filling in hire-purchase agreements which warranted the firm had full title in the car.
  • 17 days after the rogue sold the car, C demanded the return of the car from the firm. D eventually bought the car from the firm in good faith without notice of the defect in title.

Issues

  • Had there been a valid rescission before the rogue sold the car to the firm, thereby leaving C with the title of the car?

Held by the Court of Appeal

  • Finding for C, that C rescinded the contract of sale when he asked the police to recover the car.

Sellers L.J.

  • The question is whether a contract voidable by C can in any circumstances be terminated by C without his rescission being communicated to the other party, the rogue who has vanished into thin air.
  • The general rule is that where a party is entitled to rescind a contract and when they choose to exercise this option, the contract subsists until the other party is informed that the contract has been terminated.
  • The difficulty in this case is that when C learnt of the fraud, he could not find the car or the fraudulent buyer without considerable delay. Such circumstances would not appear to be so rare in transactions in motor cars. However, over the years the point in issue has not been decided in any reported or comparable cases.
  • Lord Denning M.R. has held that in these circumstances there can be rescission without communication where the seller of a car (who had the right to rescind the contract of sale on the ground of fraudulent representation) terminates the contract through an act that clearly demonstrated that he had chosen to rescind it.
  • “Where a contracting party could be communicated with, and modern facilities make communication practically world-wide and almost immediate, it would be unlikely that a party could be held to have disaffirmed a contract unless he tried to communicate his decision…But in circumstances such as the present case, the other contracting party, a fraudulent rogue who would know that the vendor would want his car back as soon as he knew of the fraud, would not expect to be communicated with as a matter of right or requirement, and would deliberately do all he could to evade any such communication being made to him. In such exceptional contractual circumstances, it does not seem to me appropriate to hold that a party so acting can claim any right to have a decision to rescind communicated to him before the contract is terminated. To hold that he could would involve that the defrauding party, if skilful enough to keep out of the way, could deprive the other party to the contract of his right to rescind, a right to which he was entitled and which he would wish to exercise, as the defrauding party would well know or at least confidently suspect” [550E].
  • In the case of an innocent misrepresentation, the misled party failing to communicate their decision to the other party (willing and not acting to avoid communication) would leave the contract still in effect.
  • It must be recognised that in transactions such as this where fraud intervenes, some innocent party may have to suffer, and it may well be that legislation is overdue to do justice between the victims of fraud.

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